Question

HOW DO I CALCULATE?

Glassworks Inc. produces two types of glass shelving, rounded edge and squared edge, on the same production line. For the current period, the company reports the following data. Direct materials Direct labor Overhead (300% of direct labor cost) Total cost Quantity produced Average cost per ft. (rounded) Rounded Edge $ 9,700 6,100 18,300 $34,100 10,600 ft. $ 3.22 Squared Edge Total $21,600 $ 31,300 11,900 18,000 35,700 54,000 $69,200 $ 103,300 14,200 ft. $ 4.87 Glassworks's controller wishes to apply activity-based costing (ABC) to allocate the $54,000 of overhead costs incurred by the two product lines to see whether cost per foot would change markedly from that reported above. She has collected the following information Overhead Cost Category (Activity Cost Pool) Supervision Depreciation of machinery Assembly line preparation Total overhead Cost $ 2,160 28,840 23,000 $ 54,000 She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines. (Round activity rate and cost per unit answers to 2 decimal places.) Usage Rounded Edge Squared Edge Overhead Cost Category (Activity Cost Pool) Supervision Depreciation of machinery Assembly line preparation Driver Direct labor cost ($) Machine hours Setups (number) Total $18,000 1,000 hours 125 times 300 hours 31 times 700 hours 94 times

Answer 1

Ans.	Activity	Overhead cost (a)	Activity drivers (b)		Activity rate (a / b)
	Supervision	$2,160	$18,000	Direct labor cost	12.00%	of Direct labor cost
	Depreciation of machinery	$28,840	1000	Machine hours	$28.84	Per Machine hours
	Assembly line preparation	$23,000	125	Setups (number)	$184.00	Per Setup
	Rounded edge	Activity rate (a / b)		Activity driver	Overhead
				incurred	assigned
	Supervision	12%	of Direct labor cost	$6,100	$732
	Depreciation of machinery	$28.84	Per Machine hours	300	$8,652
	Assembly line preparation	$184.00	Per Setup	31	$5,704
	TOTAL OVERHEAD ASSIGNED				$15,088
	Squared edge	Activity rate (a / b)		Activity driver	Overhead
				incurred	assigned
	Supervision	12%	of Direct labor cost	$11,900	$1,428
	Depreciation of machinery	$28.84	Per Machine hours	700	$20,188
	Assembly line preparation	$184.00	Per Setup	94	$17,296
	TOTAL OVERHEAD ASSIGNED				$38,912
Ans. 2		Rounded edge	Squared edge
	Direct materials	$9,700	$21,600
	Direct labor	$6,100	$11,900
	Overhead assigned	$15,088	$38,912
	Total manufacturing costs	$30,888	$72,412
	Quantity produced	10600	14200
	Average cost per foot	$2.91	$5.10
	Average cost per foot   =   Total manufacturing cost / Quantity produced
	*Activity rate = Overhead cost / Activity drivers